Millenials are impacting the housing market like never before, and that impact is only going to grow in the coming years.
According to the Pew Research Center, a Millennial is someone who was born between 1981 and 1996 and comprises the largest generation in the U.S. Perhaps it’s not surprising, then, that in 2019, these 24 to 39-year-olds were responsible for more mortgages than any other demographic, according to Business Insider, based on analysis from Realtor.com. One reason was that they are putting down smaller down payments on the homes they
The 2020 real estate market is projecting to shape up much the same way, with Millennials at the helm of the buying surge. In fact, Realtor.com predicted that Millennials will comprise 50% of mortgage shares, compared to Generation X (32%) and Baby Boomers (17%). Millennials are more often than not first-time home buyers.
Regarding home buying readiness, there is a big difference between a 24-year-old and a 39-year-old. Some of the younger Millennials are delaying buying homes due to college debt, but those on the older end of the spectrum are starting to pay off their college debt, settling down to raise families and are now ready to buy. The older Millennials also have deeper pockets, having accumulated more working experience, some of whom are already on their second job out of college.
But unlike the way it was for their parents’ generation, not all Millennials wait until they’re married to buy a house. With or without a partner, many buy when they’re still single. “It is interesting for us real estate companies. Now we have to sell her house and his house and their new house,” said Tom Hosack, president of Berkshire Hathaway.
A Surge in the Millennial Buying Market
Hosack said that the older segment of Millennials represents one of the largest categories of buyers he comes across, a number that has dramatically increased in the past two years.
Darlene Hunter, CNHS, Vice President, Associate Broker, Regional New Homes Manager with Howard Hanna Real Estate Services, New Homes Division, agreed. “From my perspective, I see more Millennials buying into the market. Some held back because of student loan debt and are maybe still living in their parents’ basement, but I see that changing.”
Others are coming from rental situations. Or, said Hunter, “Maybe some of them did have a smaller home in the city but are now ready to settle down and make a commitment to that traditional family home.”
Millennials are not buying starter homes like their parents did. “The challenge is Millennials do not feel that they should have less of a quality of life in a family home. They don’t want to go to the traditional starter home and buy it and fix it up; they want to wait till they hit 30 or 32 and have that income to be able to get a home closer to what their parents had,” observed Hosack.
“I bought my first home when I was 22. I fixed it and sold it; that process is rare,” continued Hosack. He added that nationally, a Millennial’s first home purchase is often an investment property rather than a primary residence, but that does not happen as much in Pittsburgh.
Where Millennials Buy/Inventory
Because of the wide difference in the Millennial age range and their lifestyles, they likely will be drawn to different locations, depending on where they are in their lives. Younger ones often seek out urban neighborhoods, while older Millennials, while they also do like city living, are more amenable to suburban life.
Paul Scarmazzi, president of Scarmazzi Homes, a custom home builder headquartered in Canonsburg, believes that Millennials are more attracted to urban environments, but explained he uses ‘urban’ in a loose context, not necessarily limited to Pittsburgh per se “…but cool towns that have something different or unique, not cookie cutter subdivisions.”
“If they’re in their 20s, they may be looking for a high-end apartment or something sleek and cool in the city. If they’re not looking for a lifestyle, perhaps they’ll stay in suburbia for their first-time home. If they’re looking to settle, they’re probably looking for a suburban market, or a neighborhood like Squirrel Hill where it’s still the city, but they can find a more traditional home with a yard,” said Hunter.
For the Millennial buyer, inventory in our area can be a bit of a challenge. On the bright side, Millennials are responsible for gentrifying many city neighborhoods such as Lawrenceville and the North Side. City neighborhoods continue to be attractive, particularly if they’ve grown up in those neighborhoods.
Hunter added that Garfield is emerging as well. “We work with a lot of community groups, like East Liberty Development, that are building townhomes and different products. We’re working with them to find builders and developers to develop projects for younger folks,” she said.
“We are trying to encourage Millennials to come into some other communities that they may not have come to before,” she added. She pointed to Rivers Edge in Oakmont as an example where families, previously used to the culture of city living, are starting to flock.
“The whole Oakmont community is suburban but it has that walkability to it, not only to groceries but to some cool things, like a theater and many, many great restaurants and bars. They’re attracted to those things because in a sense, it reminds them of a city,” said Hunter.
But for other Millennials, the suburbs are calling. Hosack said that Shaler is the new hot spot for this demographic. Hunter said that both the northern suburbs, such as Cranberry, Seven Fields, Marshall Township, and the southern suburbs, such as Peters, Upper St. Clair, and Mt. Lebanon, are attracting more Millennials.
Not all Millennials want the same things, particularly in light of their age gap. But if any generalities can be made as a whole, Hosack said that, as a group, they have been drawn to more urban environments than anywhere else so that they can either walk to where they need to be or only be a short drive or Uber ride away.
Nationwide, one factor that is impacting inventory is that people are working well past the traditional retirement age of 65, and many are also choosing to age in place, resulting in less of a product available for first-time buyers. Plus, with more access to home care or the prohibitive costs of assisted living facilities, there is less of a need for an older couple to sell their home.
“People used to move every seven years, but that is stretching out, with people staying in homes much longer,” said Hosack. One of the reasons for this is the recession in 2008, leading to many homeowners remodeling and/or refinancing at low rates. Also, many Baby Boomers still have Millennial children living at home, which delays the time frame for when the older generation chooses to downsize or move into retirement communities. Once the Millennials move on and out, that will likely spur a home buying surge in the Baby Boom generation also.
Even though home prices have gone up significantly, real estate affordability in Western Pennsylvania is one of the highest in the country, Hosack said. “The good thing is, we have a lower average sale price, and though our wages are not New York level, they are much higher than most of the other markets that have affordable homes.”
As Pittsburgh is home to many high-paying tech jobs held by Millennials, coupled by general affordability of real estate, some are paying more than average for first-time homes. What they’re buying is really all over the board in terms of price. Predominantly, though, Hosack said that they’re buying in the $80-$125,000 range.
What Millennials Want
Though they are young, a good number of Millennials are seeking a low-maintenance lifestyle, particularly when it comes to home ownership, as well as a home with the most updates and the least number of repairs.
Millennials don’t want to cut the grass or shovel snow, and they want to have stuff delivered. They’re more experiential, looking for experiences and tend to be more inwardly focused about what makes them happy,” said Scarmazzi.
Still, said Scarmazzi, some are looking for fixer uppers. “I’m not broad brushing 82 million people in this segment—certainly there’s a portion that want the opportunity to create equity and think that will be fun, but another portion will gravitate toward the lower maintenance new scenario.”
Though Scarmazzi generally caters to baby boomers, providing a lifestyle solution by building primarily one-level homes, he has considered that Millennials might want similar things. “As I started to read and understand more, I realized that Millennials are a larger population than Baby Boomers: Millennials will earn 46% of total income in the U.S. by 2025,” he said.
“I think that they would rather hike at Ohiopyle than cut the grass, especially pre-kids, but kids do change everything. Even with kids, you’re busy,” he added.
Hunter agreed, pointing again to Rivers Edge of Oakmont as an example of a low-maintenance community that is attracting Millennials. “We’re seeing more young people there because both are working and they have children and they don’t have time to maintain the property. And they want to be doing other things; they don’t want to be a slave to the home and take care of their yard, but they still want some green space, some outdoor space, even a park within the community or walking trails and sidewalks. They really don’t want to use a car if they don’t have to,” she said.
Not only do they want a low-maintenance lifestyle, they are also looking for higher-end amenities, such as granite countertops and an open concept floor plan. “Some like the small, very energy efficient home, some like more flashy homes; it depends,” said Hosack.
Scarmazzi said that Millennials are concerned with technology and a home that has more efficient space. “The technology in homes is light years above when their parents bought a house. The construction technologies, the materials, the energy efficiency and the product that they’re looking at is very different,” he said. Nonetheless, the fundamentals are still very similar in the home buying process. “It’s either a seller’s or a buyer’s market, and the pendulum swings back and forth.”
Hunter said that many are seeking a more contemporary look, such as sleeker cabinetry, hardwood floors, open stair rails, etc., but the housing stock in Pittsburgh does not always lend itself to that. “What they see on the outside may not reflect what they want to feel on the inside,” she said, adding that some buyers are overhauling interiors to give them a fresh new look.
Outdoor living is attracting this set as well. Scarmazzi said that outdoor living space is important to the Baby Boomers, and, “I think that transfers to a younger, active generation as well. They want to create outdoor, intimate spaces,” he said.
“Primarily, they’re looking for that little green space or patio area to chill out, to have an outdoor grill and kitchen,” added Hunter.
“If they’re in their 20s, they may be looking for a high-end apartment or something sleek and cool in the city. If they’re not looking for a lifestyle, perhaps they’ll stay in suburbia for their first-time home. If they’re looking to settle, they’re probably looking for a suburban market, or a neighborhood like Squirrel Hill where it’s still the city, but they can find a more traditional home with a yard,”
Relying on Technology
Millennials are embracing technology to purchase their homes, and real estate companies are keeping up.
“It’s good—you just have to adjust. We are now the information provider, but the data is out there. It takes away that part of it, of finding available properties, but as realtors, we have firsthand knowledge of things before it gets to that tech world. Our job becomes more providing them the knowledge for the process: the process of buying the home, providing advice, and guidance. Our big job is negotiating the best price for them and the purchase/sale of the home. Those are things we have always done, but they’ve become more of the primary focus, I think,” said Hunter.
Scarmazzi said that because the Millennial generation are ‘digital natives,’ the idea of building tech-savvy communities has piqued his interest. “It makes sense when I look at how Millennials are going to affect the market,” he said.
Overall, the Millennial impact on the housing market is and will continue to be strong. Still, said Hunter, their impact locally will be based on the housing stock available. For those who prefer to build, Hunter said she works with local builders and developers, who are starting to build homes that are more affordable, such as in the $250-$350,000 range.
Scarmazzi said that this demographic will have a solid impact that will continue to grow, particularly as their debt reduces, their savings increase, as does their desire to move forward in life. And since there are so many Millennials making good wages in the technology sector in Pittsburgh, they will likely continue to gravitate toward the city to start but will migrate out of the city eventually. “Over time, more and more will enter into the home buying market and will bolster an already strong housing market we have in Pittsburgh,” he said.
Hosack said that the market constraint is not who wants to buy but who wants to sell. “We have more buyers than sellers for sure. Millennials are buying more expensive homes than previous generations, so it gives us some level of comfort that we’re not headed for a cliff that is unsustainable.” NH